THE  REAL  WALL  STREET 

AN    UNDERSTANDABLE    DESCRIPTION    OF 

A   PURCHASE 
A    SALE 

A  -SHORT  SALE" 
With  Forms,  Definitions,  Rules,  &c* 

BY 

WILLIAM    HARMAN    BLACK 

M 
Of  the  New  York  BaY 

Former  Commissioner  of  Accounts  of  Greater  New  York 

and  Author  of  "New  York  &  New 

Jersey  Corporations" 


Published  by 

THE   CORPORATIONS   ORGANIZATION 
in  BROADWAY,  NEW  YORK 

HE  A 

APRIL,  1908 
i 

f*UFi- 


GENERAL 


COPYRIGHT  1908 

BY 

WILLIAM  HARMAN  BLACK 
All  Rights  Reserved 


SUBJECTS. 

PAGE 

Preliminary  Explanation, I 

Reading-  the  Market  Page, 2 

Wall  Street  Terms, 8 

Orders,         ...  13 

Purchasing  for  Investment,     .  17 

Purchase  on  Margin,           .  18 
A  Sale,             .                                                              .46 

A  "Short  Sale,"          ...  52 

Interest,           .                                                     .         .  67 

Dividends, 68 


174374 


TO   MY  FATHER 

THIS   VOLUME    IS   INSCRIBED 


PREFACE. 


During  eight  years'  special  study  in  connection  with 
my  practice  in  New  York  City,  I  have  been  unable  to  find 
anything  that  gave  a  clear  and  comprehensive  statement 
of  stock  transactions  on  the  New  York  Stock  Exchange. 
It  has  been  no  easy  task  to  write  one,  first,  because  the 
information  cannot  be  had  from  books;  second,  it  is 
exceedingly  difficult  to  compress  it  into  a  small  volume  ; 
third,  it  is  hard  to  decide  what  to  omit.  I  have  con- 
cluded to  give  the  entire  course  of  a  stock  transaction. 
If  I  have  gone  too  much  into  detail,  that  is  better  than 
leaving  out  the  very  thing  a  particular  reader  might  wish 
to  know. 

After  a  day  spent  in  the  Congressional  Library  at 
Washington,  I  can  say  that  this  is  the  first  attempt  to  give 
the  complete  mechanism  of  a  trade  in  stocks. 

I  intend  to  expand  this  volume  in  future,  and  when 
time  permits  to  use  it  as  the  skeleton  of  a  law  book  follow- 
ing the  lines  of  my  "New  York  &  New  Jersey  Corpora- 
tions," in  which  I  will  annotate  the  decisions  as  far  as 
possible,  to  the  particular  stage  of  the  trade  they  relate  to. 
Although  the  present  edition  is  the  result  of  nearly  a 
year  of  examination  of  the  law  and  customs  of  the  New 
York  Stock  Exchange,  I  am  aware  that  it  may  contain 
inaccuracies  which  I  will  be  glad  to  have  the  reader 
inform  me  of.  I  gratefully  acknowledge  my  obligation 
to  Mr.  Elbert  W.  King  for  his  most  valuable  technical 
suggestions,  and  also  to  Mr.  H.  N.  Raymond  for  his 
assistance. 

WILLIAM  HARMAN  BLACK. 
New  York,  April  ist,  1908. 


THE  REAL  WALL  STREET 

This  little  book  is  not  written  for  men  who  know,  but 
for  those  who  do  not  know  all  about  stock  transactions. 

As  for  every  buyer  there  must  be  a  seller,  so  for  every 
seller  there  must  be  a  buyer.  Every  transaction  is 
therefore,  at  least  as  far  as  the  New  York  Stock 
Exchange  is  concerned,  both  a  purchase  and  a  sale. 

Buyers  are  called  "long"  of  stocks,  or  "long"  of  the 
market.  Those  sellers  who  have  stock  to  sell  are  simply 
"sellers."  Those  sellers  who  sell  stock  they  do  not  own 
are  "short  sellers,"  or  are  "short"  of  stocks,  or  "short"  of 
the  market.  In  the  following  description  I  shall  refer 
to  the  buyer  as  "Mr.  Long,"  also  to  the  seller  who  sells 
stock  he  owns  as  "Mr.  Long,"  because  "Mr.  Long"  con- 
tinues to  own  them  until  he  sells,  and  to  the  seller  who 
sells  stock  he  does  not  own  at  the  time  of  sale  as  "Mr. 
Short." 

The  brokers  for  Mr.  Long  will  be  called  Messrs. 
"Buy  &  Hold,"  and  the  brokers  for  Mr.  "Short"  will  be 
called  Messrs.  "Sellshort  &  Co." 

The  name  of  the  brokers  who  buy  from  Messrs.  Buy 
&  Hold  are  Messrs.  "Buyshares  &  Co." 

The  brokers  who  lend  stock  I  shall  call  Messrs. 
"Lender  &  Co." 

Every  step  taken,  every  bookkeeping  entry  made, 
from  the  time  Mr.  Long  buys  or  becomes  "long"  of  a 
stock  until  he  sells  it ;  every  stage  of  the  sale  of  a  stock 
that  he  owns;  and  everything  done  in  the  sale  by  Mr. 


Short  of  a  stock  which  ^e  does  not  own  until  he  "covers" 
(or  buys  a  stock  to.  deliver  to  the  man  from  whom  he 
borrowed  to  make  the  delivery  under  his  "short-sale") 
will  be  set  out  in  detail. 

The  history  of  each  transaction  will  include  its  clear- 
ance through  the  Clearing  House  of  the  New  York  Stock 
Exchange.*  A  copy  will  be  given  of  every  entry,  memo- 
randum, or  paper,  given  or  taken,  each  in  its  logical  order. 
As  nearly  as  possible,  purchases,  sales,  and  short  sales  will 
be  photographed  and  phonographed. 

Of  course,  many  exceptional  things  happen  in  the 
course  of  stock  transactions ;  I  give  only  the  general 
custom  and  ordinary  routine. 

There  will  be  issued  later,  description  of  a  cotton 
transaction  and  of  transactions  on  the  Consolidated, 
Produce,  and  Coffee  Exchanges,  and  transactions  on 
'The  Curb." 


*  Not  the  Clearing  House  of  the  Banks. 


READING    THE    MARKET    PAGE    IN    THE 
NEWSPAPERS. 

Nothing,  outside  of  newspapers,  is  so  universally  read 
as  "the  tape,"  by  which  is  meant  the  paper  ribbon  upon 
which  the  "ticker"  prints  its  continuous  bulletins.  The 
ticker  is  a  marvelous  electrical  typewriter  worked  by 
impulse  from  the  headquarters  of  the  companies  that  rent 
them  to  their  subscribers. 

The  following  are  some  of  the  things  that  appear  on 
a  news  bulletin  tape  in  the  course  of  a  day : 

"Good  morning,  Jan.  18,  1908,  Testing,  ABC,  123, 
ABC,  123,  ABC,  123,  London,  i  P.  M.,  Consols  have  de- 
clined 1/16  to  83  11/16  for  money  and  83%  for  account 
American  Railway  shares,  with  exception  of  St.  Paul, 
which  is  down  */2,  show  as  a  rule  improvements  over 
yestdys  final  N.  Y.  prices. — London,  2.15  P.  M.,  Spl., 
American  Railway  Shares  have  been  helped  by  favorable 
forecasts  of  to-day's  New  York  Bank  statement.— N.  Y. 
Coffee  Opening,  Jan.,  585.90,  Feb.,  590.95,  Mch., 
600.605. — Phila.  Opening  Stocks,  Phila.  Elec.,  6  5/16, 
L.  Valley,  60.— N.  Y.  in  Stock  market,  Smelt- 
ing had  the  unfavorable  distinction  of  being  the  only 
stock  to  open  lower;  it  started  at  a  decline  of  ^  and  in 
all  dropped  %.  Gen.  Elec.  opened  up  2.  Del.,  Hud., 
i. — Boston  Opening  Stocks,  Ariz.  Coml.,  20.  Butte  Cltn., 
20.  Nor.  Butte,  53.  Greene,  Can.,  9. — N.  Y.  Curb  Mar- 
ket opened  strong,  Stand.  Oil,  485-490. — Chicago  Board 
Trade  Opening,  Wheat,  May,  104^  to  104^,  Jly.,  99^3. 
— N.  Y.  Cotton  Exge.,  at  the  opening  this  morning  the 
Cotton  Market  was  quiet  and  easier,  there  was  no  evi- 
dence of  liquidation  by  leading  Bulls. — N.  Y.  Stock 
Transactions,  Degener  and  Burke,  Simmons  and  Slade 


and  Talyor,  Livingston  bought  Union  Pacific.  E.  F.  Hut- 
ton  1,000,  Ball  &  Whicher  and  J.  S.  Beams  sold  Union 
Pacific,  Wassermann  Bros.,  2,500,  E.  F.  Hutton,  1,500, 
and  Seligman  and  Mayer,  1,500.  C.  B.  McDonald,  C.  D. 
Barney,  and  Hallgarten  Co.  bought  Smelters.  I.  and 
S.  Wormser  sold  4,000  smelters.  E.  Meyer,  Jr.,  1,000, 
and  R.  H.  Bissell,  2,000.  Bought  Northern  Pac.  W.  C. 
Van  Antwerp  sold  3,000. — N.  Y.  Commercial  Bar  Silver, 
55^2C.,  advance,  y$c.  Mexican  Dollars,  44c. — N.  Y.,  the 
Sub-Treasury  was  a  debtor  at  the  Clearing  House  this 
morning  to  extent  of  1,664,219  dlrs. — Phila.  Stocks,  10.50 
A.  M.,  U.  G.  I.  offd.,  79^4.  Lehigh  Navigation  T.  C, 
88^.  Phila.  Traction,  88^  B.— N.  Y.  Prod.  Exge.,  the 
fact  that  an  advance  of  ^  to  T/^  D.  in  Wheat  at  Liverpool 
to-day  was  attributed. — N.  Y.  Sterling  Exchange,  after 
opening  practically  unchanged,  this  morning  resumed  its 
upward  course,  with  some  violence  during  first  hour. — 
Phila.  Bank  Clearings,  20,544,067,  balances,  1,735,363. — 
Chicago,  losses  which  will  count  up  to  nearly  1,000,000 
dlrs.  were  sustained  early  to-day  in  a  fire  which  destroyed. 
— Paris,  private  rate  discount,  3^  P.  C.  decline,  %. 
Exchange  on  London,  25  frs.,  17^2*0.  unchgd. — Earn- 
ings, Western  Maryland,  send,  week  Jan.,  '97,  791,  inc. 
1,046  from  July  1st,  3,390,711,  inc.  543,157.— Good- 
night, Jan.  17,  1908,  at  11.15  p-  M-" 

The  ticker  that  confines  itself  to  the  Stock  Market  and 
the  official  ticker  of  the  Exchange  is  that  of  the  New 
York  Quotation  Company.  There  are  a  number  of  others 
that  give  news  of  every  sort,  from  freshets  to  prize  fights, 
especially  all  sporting",  base-ball  and  racing"  news. 

Owing  to  the  difference  in  time  between  the  cities 
Americans  know  what  the  London  and  other  foi  eign  mar- 
kets are  doing  before  our  own  New  York  Exchange  opens 


at  10  A.  M.  This  frequently  exercises  no  small  influence 
on  our  own  "opening"  prices.  Transactions  on  the 
Exchange  are  reported  with  lightning  rapidity,  estimated- 
ly  within  five  seconds  from  the  time  of  the  transaction. 
The  bulletins  on  the  tape  start  with  "Good-morning," 
then  a  few  letters  to  test  the  working  of  the  ticker. 
There  follows  the  London  price  for  American  shares,  the 
equivalent  being  compared  with  the  New  York  closing 
price  of  the  night  before.  In  busy  times  the  ticker 
is  often  five  to  ten  minutes  behind,  and  once  it 
clicked  out  prices  fifteen  minutes  after  three  o'clock,  when 
3,336,695  shares  were  sold.  The  official  record  of  the 
prices  for  the  day  is  the  "pink  sheet,"  which  appears  after 
the  closing  at  three  o'clock.  It  gets  its  name  from  the 
pink  paper  on  which  it  is  printed. 

The  daily  papers  print  the  "opening,"  the  highest  price 
during  the  day,  the  lowest,  and  the  closing  prices,  and 
the  most  of  them  print  the  "net  change."  In  the  column 
to  the  left  of  the  name  of  the  stock  under  the  word 
"sales"  appears  the  number  of  shares  sold  that  day,  and  at 
the  bottom  of  the  column  the  total  sales  for  the  day. 
Some  of  the  papers  give  a  comparison  of  the  total  sales 
with  total  sales  of  a  year  previous,  with  those  a  week 
previous,  and  those  of  the  day  before. 

Following  is  fac-simile  of  part  of  the  market  report 
taken  from  a  New  York  paper  of  March  I3th,  1908: 

"To-day's  highest,  lowest  and  closing  prices,  on  actual 
sales,  the  number  of  shares  sold,  and  the  net  changes 
from  yesterday's  closing  prices  or  from  last  recorded  sale, 
were  as  follows: 


High-  Low-    Clos-  Net 
Sales.  est.       est.       ing.ch'g's. 

58650  Amal.  Copper 56%     53^     56^+2 

200  Am.  Can 5)4       4%       5 

100  Am.  C.  &  F'y  pr 88%     88%     88%—  ^ 

*  *  *  * 

-{-Increase.     — Decrease.     JEx-dividend. 

Total  sales  662,254  shares,  against  611,160  yester- 
day, 284,428  a  week  ago,  and  1,722,450  a  year  ago." 

It  shows  58,650  shares  of  Amalgamated  Copper  sold. 
The  opening  price  is  not  given,  but  it  is  seen  that  during 
the  day  it  sold  at  56%,  the  "highest,"  that  it  dropped  to 
53%,  the  "lowest,"  and  that  at  the  close  of  the  day  it  had 
rallied  to  56%,  the  "closing."  There  appears  a  final  gain 
of  two  points,  which  is  indicated  by  a  plus  sign,  thus,  -f-2. 
This  -\-2  "net  change"  is  the  difference  between  the  clos- 
ing price  March  I3th  and  the  closing  price  of  the  day 
before,  when  the  stock  closed  at  54.  In  other  words,  it 
is  up  two  points  from  the  price  of  the  day  before.  It 
appears  from  above  that  100  shares  of  Am.  Car  &  Foun- 
dry, preferred,  closed  at  88%,  and  that  there  was  a  dif- 
ference between  this  and  the  closing  of  the  day  before  of 
Y%  of  a  point.  Consequently,  there  was  a  "net  change" 
of  — 5/6  in  this  stock,  the  minus  sign  indicating  a  loss  in 
price.  If  there  is  no  change  in  the  closing  price  to-day 
as  compared  with  the  closing  price  of  the  day  before, 
nothing  appears  in  the  "net  change"  column,  as  in  above 
case  of  200  Am.  Can.  The  comparison  of  sales  with 
those  of  a  week  ago  and  a  year  ago  at  the  end  of  the  table 
is  useful  to  determine  the  relative  activity  of  the  market. 

In  another  column  of  the  same  paper  appears  the 


"Closing    quotations,"    in    two    columns,    "Bid,"    and 
"Asked."     A  sample  follows : 

CLOSING  QUOTATIONS  FOR  STOCKS. 


To-day.  Yesterday. 

Bid.  Asked.  Bid.  Asked. 

Amal'ed  Copper 56^     56%  S4T/s    54TA 

Am.  Car  &  Foundry 29^     29^  29        2914 

Am.  Car  &  F'dry,  pr 87^     88j^  87^     88% 

Am.  Hide  &  Leather 2^       3  2^       3 

On  page  8  are  definitions  of  the  terms  in  common 
use. 


WALL    STREET    TERMS. 

BEAR. — A  believer  in  low  prices — a  seller — or  "short 
seller."  One  who  believes  the  market  is  going  down. 

BUCKET  SHOP. — Place  whose  owner  does  not  place 
orders,  but  who  bets  against  his  customer.  Their  inter- 
ests are  always  antagonistic. 

BULL. — The  reverse  of  a  bear. 

BOARD  ROOM. — The  Stock  Exchange  Floor. 

BULGE. — A  quick,  moderate  advance. 

"BUYING  ON  A  SCALE/' — Up  or  down  would  be,  for 
example,  buying  at  30-32,  34  or  buying  30,  28,  26,  etc. 

CALL. — A  privilege  of  demanding  stock  according  to 
its  terms.  Following  is  a  call : 

New  York, 190 

For  Value  Received,  the  bearer  may  CALL  ON  ME  on 
one   day's   notice   except   last   day   when   notice   is   not 

required   : Shares 

of  the Stock  of  the 

Company,  at 

per  cent,  any  time  in 

days  from  date 

All  dividends  for  which  Transfer  Books  close  during 
said  time,  go  with  the  Stock. 

Expires 190 


COALERS. — Coal-carrying  railroad  lines. 

COMBINATION,,  OR  SPREAD. — Both  a  put  and  a  call. 

CONSOLS. — The  leading  English  security,  paying  2^4 
per  cent.  It  is  the  bonded  debt  of  Great  Britain. 

COPPERS. — Copper  stocks. 

CORNER. — A  corner  exists  when  one  man  or  group  of 
men  acquires  all  the  available  stock  of  a  concern,  and 
Bears  cannot  buy  or  borrow  the  stock  to  deliver  to  make 
good  their  contracts.  If  sellers  cannot  deliver  they  must 
settle  at  such  prices  as  their  purchasers  demand. 

"CURB/"  The. — A  group  of  brokers  operating  on 
Broad  Street  in  the  open  air  who  deal  in  securities  not 
dealt  in  on  the  New  York  Stock  Exchange.  They  use 
signals  like  the  deaf  and  dumb  alphabet  to  communicate 
their  trades  to  and  from  telephone  operators  who  have 
places  upstairs  in  view  of  The  Curb  on  both  sides  of 
Broad  Street. 

DISCRETIONARY  POOL. — Men  agreeing  that  one  of  their 
number  or  some  man  selected  shall  manipulate  their  stock 
for  the  joint  benefit. 

E.  E. — Errors  excepted. 

E.  &  O.  E. — Errors  and  omissions  excepted. 
'  FLURRY. — A  sudden  decline,  or  a  sudden  advance. 

GOULD  STOCKS. — M.  O.  P.,  Tex.  Pac.,  Western  Union, 
etc. 

GRANGERS. — Railroads  that  traverse  the  grain-produc- 
ing sections  of  the  West,  as  C,  B.  &  Q.,  C,  M.  &  St.  P., 
etc. 

INDUSTRIALS. — Companies  engaged  in  producing  or 
manufacturing,  such  as  Am.  Sugar,  Am.  Tob.,  Continen- 
tal Tob.,  U.  S.  Steel,  U.  S.  Leather,  etc. 

INSIDERS. — Those  in  a  position  to  possess  information 
which  the  public  does  not  have. 


10 

LIQUIDATING  MARKETV — Market  where  there  is  a  good 
deal  of  closing  out  of  contracts. 

PAPER  PROFITS. — Apparent  profits  on  unclosed  com- 
mitments. 

PASSING  A  DIVIDEND. — Not  paying  it  at  regular  time. 

POINT. — One  per  cent,  advance  or  decline.  The  frac- 
tional parts  of  a  point  are  */$,  %,  }i,  y2,  y$,  }%,  %- 

POOL. — A  combination  of  interests  to  accomplish  cer- 
tain results. 

PUT. — Reverse  of  a  call.  An  agreement  to  take  stock 
at  an  agreed  price.  Sample  follows : 

New  York, 190 

For  Value  Received,  the  bearer  may  DELIVER  ME  on 
one  day's  notice  except  last  day  when  notice  is  not 

required  Shares 

of  the Stock  of  the 

Company,  at 

per  cent,  any  time  in 

days  from  date. 

All  dividends  for  which  Transfer  Books  close  during 
said  time,  go  with  the  Stock. 

Expires 190 


M. 


PYRAMIDING  OR  PARLAYING. — Applying  profits  to  in- 
crease one's  holding. 

RALLY. — An  upward  spurt. 

REACTION. — There  is  a  reaction  when  stocks  go  down 
after  being  up. 


II 

REALIZING. — Buying  or  selling  to  take  profits  made. 

SCALPING. — Professional  traders  getting  in  or  out  fre- 
quently and  making  small  profits. 

SHORT  INTEREST. — Traders  who  have  sold  short. 

SPECIALIST. — Dealer  in  one  or  more  particular  stocks. 

Stocks  are  preferred  or  common.  And  there  may  be 
first  preferred,  second  preferred,  etc.  The  difference 
between  preferred  stock  and  common  stock  is  that  pre- 
ferred has  priority  in  payment  of  dividends.  The  first 
dividends  earned  are  applied  to  the  preferred.  If  any 
dividend  over  them  has  been  earned  it  may  be  applied  to 
the  common.  *  Cumulative  dividends  are  those  which,  if 
not  paid,  accumulate  from  dividend  period  to  dividend 
period.  If  dividends  are  not  earned  in  one  dividend 
period  they  remain  a  charge  in  favor  of  cumulative  divi- 
dend stocks  and  when  the  money  is  earned  all  such  accu- 
mulations must  be  paid  in  full  before  there  is  any  payment 
on  the  common  stock. 

The  par  value  of  most  stocks  is  100  dollars  per  share, 
but  there  are  half  stocks,  the  par  value  of  which  is  fifty 
dollars  per  share,  like  Reading  or  Pennsylvania. 

Stocks  are  either  assessable  or  non-assessable.  Hold- 
ers of  partly  paid  stock  are  liable  for  the  difference  be- 
tween what  they  have  paid  in  and  the  par  value  of  the 
stock. 

STRADDLE. — A  put  and  a  call,  a  double  privilege. 

TWISTING  THE  SHORTS. — Obliging  Bears  to  cover  at  a 
loss. 

TRACTIONS. — City  railroads,  such  as  Metropolitan, 
B.  R.  T.,  Third  Ave.  R.  R.,  Interborough,  etc. 

UNDER  THE  RULE. — See  page  37. 

UNLOAD. — To  sell  out. 


12 

VANDERBILTS. — Railroads  controlled  by  that  family. 

WASH  SALES. — Fictitious  sales,  afterwards  called  off 
by  the  parties  to  them. 

WATERING  STOCK. — Increasing  capitalization  without 
proportional  assets. 

"WHIPSAWED." — Getting  caught  "coming  and  going." 
For  instance,  going  short  at  18  and  covering  at  19 — then 
buying  at  21  and  selling  at  20. 


13 

ORDERS. 
There  is  the  straight  "market  order"  as  follows : 


Buy  100  Union  Pacific. 
S 


Customer. 


or 


Sell  100  Union  Pacific. 
Signed, 


Customer. 


Printed  in  black  ink  on  white  paper.  Printed  in  red  ink  on  white  paper. 

Such  an  order  is  at  once  executed  at  the  best  market 
price. 

There  is  also  what  is  called  a  "limited  order,"  where  a 
price  is  fixed,  such  as  follows: 


Buy  100  Union  Pacific  138. 


Signed, 


Customer. 


or 


Sell  100  Union  Pacific  142. 
Signed, 


Customer. 


Printed  in  black  ink  on  white  paper.  Printed  in  red  ink  on  white  paper. 

In  case  the  broker  holding  these  orders  had  the  floor, 
the  buying  order  would  be  filled  as  soon  as  100  shares  of 
stock  was  offered  at  138,  the  selling  order  filled  when  142 
is  bid  for  100  shares. 

The  broker  making  the  first  bid  at  a  price  has  the 
floor  at  that  price,  up  to  the  amount  of  stock  for  which  he 
is  bidding. 

He  has  the  privilege  of  buying  the  first  stock  which 
is  offered  at  his  bid  price,  unless  this  stock  is  offered  in 
a  block,  "all  or  none,"  which  exceeds  the  amount  for 
which  he  is  bidding. 

It  is  sometimes  hard  for  a  customer  to  understand 
why,  when  500  or  1,000  shares  are  printed  on  the  tape  at 
his  limit,  his  stock  is  not  bought ;  the  reason  is  that  some 
broker  on  the  exchange  has  offered  500  or  1,000  shares 


14 

"all  or  none/'  which  means  that  he  has  a  block  of  stock 
for  sale  and  will  not  consider  a  loo-share  bid. 

Where  a  customer  wants  to  limit  his  loss  to  a  certain 
amount,  say,  3  points,  he  enters  a  "stop  order."  After 
having  bought  100  Union  Pacific  at  140,  he  will  enter  a 
stop  order  as  follows : 


;     Sell  100  Union  Pacific  at  137  Stop.     : 
Printed  in  red  ink  on  white  paper. 

Or  in  case  he  has  sold  short  100  Union  Pacific  at  140,  he 
will  enter  the  following: 


:     Buy  100  Union  Pacific  at  143  Stop.     : 
Printed  in  black  ink  on  white  paper. 

All  stop  orders,  unless  otherwise  specified,  are  consid- 
ered by  the  broker  to  be  "G.  T.  C,"  that  is,  "good  till 
cancelled." 

Orders  may  be  put  in  good  for  any  specified  period 
of  time. 

All  other  orders  are  considered  to  be  good  for  only 
one  day  (the  day  on  which  the  order  is  given). 

The  rule  among  brokers  relative  to  the  execution  of 
a  stop  order  is  as  follows : 

In  the  case  of  a  selling  stop,  as  soon  as  100  shares 
of  this  certain  stock  sells  or  is  offered  by  another  broker 
at  or  below  the  stop  price,  the  stop  order  immediately 
becomes  a  "market  order/'  and  the  broker  who  has  the 
stop  oVder  sells  his  stock  at  the  best  market  price,  irre- 
spective of  his  stop  price.  This  accounts  for  the  fact 
that,  except  in  the  active  stocks,  a  broker  is  often  unable 
to  execute  a  stop  order  at  the  stop  price.  The  same 
holds  true  in  stop  orders  to  buy,  except  that  this  stop 


15 

becomes  operative  (a  market  order)  when  100  shares  sell 
or  are  bid  for  at  or  above  the  stop  price. 

Where  a  customer  wants  to  stop  a  loss  and  yet  have 
his  stock  sold  at  not  less  than  the  stop  price  he  enters  what 
is  called  a  "stop  and  limit  order"  as  follows : 


Sell  100  Union  Pacific  at  137  Slop  and  Limit. 
Signed, 


Customer. 
Printed  in  red  ink  on  white  paper. 


Just  as  in  the  foregoing  case  this  order  becomes 
operative  as  soon  as  100  shares  of  the  certain  stock  are 
sold  or  are  offered  at  or  below  the  stop  price,  except  that 
the  broker  holding  this  order  then  has  a  straight  limited 
order  which  he  cannot  sell  for  less  than  the  limited  price. 

Stop  and  limit  orders  are  sometimes  put  in  as  follows : 

Sell  100  Union  Pacific  137  Stop,  Limit  130. 
Printed  in  red  ink  on  white  paper. 


In  this  case  when  stock  sells  or  is  offered  at  137  the 
broker  has  an  order  to  sell  at  136  or  better. 

*  A  customer  may  buy,  and  usually  does  buy,  "regu- 
lar," which  means  the  stock  will  be  cleared  on  the  New 
York  Stock  Exchange  Clearing  House  sheet  the  next 
day,  or  he  may  buy  "at  3  days"  (or  at  any  number  of 
days  not  exceeding  60),  and  he  may  buy  "B.  O."  (buyer's 
option)  or  "S.  O."  (seller's  option).  "At  three  days" 
means  the  buyer  has  3  days  in  which  to  pay  for  the  stock. 
On  the  tape  this  would  read  "100  U.  P.  140,  3."  At  the 
expiration  of  three  days  the  stock  thus  bought  auto- 


*  Art.  23,  Sees.  3, 4-5-6,  8-9.    Rules  of  New  York  Stock  Exchange. 


i6 

matically  delivers  itself  through  the  New  York  Stock 
Exchange  Clearing  House. 

He  may  also  buy  "Cash,"  which  would  read  "100 
Union  Pacific  140  C. ;"  this  means  that  the  buyer  is  pre- 
pared to  pay  cash  and  will  receive  and  pay  for  the  stock 
on  the  day  of  purchase. 

Any  option  for  more  than  three  days  requires  one 
day's  notice  by  the  buyer  or  seller  to  be  availed  of.  "B.  O." 
(buyer's  option)  means  that  the  buyer  may  demand  the 
stocks  within  the  time  specified,  and  "S.  O."  (seller's 
option)  means  the  seller  may  deliver  the  stock  to  the 
buyer  any  time  up  to  and  including  the  number  of  days 
the  seller's  option  runs. 


17 
PURCHASING  FOR  INVESTMENT. 

Buying  stocks  for  investment  is  like  buying  anything 
else.  The  buyer  simply  notifies  the  broker  that  he 
wishes  to  buy  so  many  shares.  He  gives  his  broker  his 
check  or  the  cash,  or  agrees  to  pay  him  when  the  stock 
is  delivered  to  him. 

The  same  routine  is  observed  as  in  case  of  a  purchase 
on  margin,  described  on  the  next  page. 


i8 
PURCHASE  ON  MARGIN. 

Mr.  Long  tells  the  office  manager  of  his  broker  that 
he  wishes  to  buy  or  be  "long"  of  100  shares  of  Union 
Pacific. 

At  this  time  it  is  quoted  at  140,  making  100  shares 
worth  14,000  dollars.  Under  the  custom  of  the  business 
Mr.  Long  is  required  to  put  up  ten  points  margin  on  each 
share,  or  $1,000.  This  "margin"  is  the  deposit  Mr.  Long 
makes  with  his  broker  in  part  payment  of  his  purchase. 
The  margin  may  be  in  a  check  or  cash.  Good  securities 
(stocks,  bonds,  debentures,  etc.),  for  which  there  is  ready 
market,  are  also  freely  accepted  by  the  broker  as  margin. 

Under  the  law  of  New  York  State,  where  your  con- 
tract is  to  be  made  and  performed,  and  consequently  the 
law  that  will  govern  your  purchase  or  sale,  the  brokers, 
Messrs.  Buy  &  Hold,  who  do  not  own  the  stock  them- 
selves, but  simply  act  for  their  customer,  Mr.  Long, 
lend  Mr.  Long  the  difference  between  the  margin  he  is 
required  to  put  up  and  the  full  purchase  price  of  the 
stock,  or  in  the  illustration  I  am  giving,  $13,000.  Messrs. 
Buy  &  Hold,  Mr.  Long's  brokers,  merely  hold  the  stock 
as  collateral  or  pledge  to  secure  themselves  for  this 
loan  of  $13,000.  The  brokers  in  turn  can  borrow  on  this 
stock  from  their  bankers,  or  can  lend  it  out  at  interest  as 
explained  on  page  57. 

On  this  balance  of  13,000  dollars  due  by  Mr.  Long, 
the  brokers  Buy  &  Hold  charge  Mr.  Long  interest. 
They  do  not  charge  him  interest  on  the  full  purchase 
price  of  fourteen  thousand,  because  Mr.  Long  has  already 
put  up  his  margin,  or  part  payment,  of  one  thousand 
dollars. 

Where,    instead   of   cash,    securities   are   put   up   as 


19 

margin,  the  broker  charges  interest  on  the  full  cost  of 
the  stock  purchased.  When  the  margin  is  in  stocks  the 
broker  can  put  them  up  with  his  bank  as  collateral  for 
the  funds  with  which  he  carries  his  customers'  accounts, 
provided  always  that  he  is  in  position  to  return  them  upon 
demand.  In  New  York  Stock  Exchange  transactions, 
interest  runs  every  day.  Their  stocks  are  cleared  daily, 
as  will  be  shortly  explained,  except  Saturday.  Friday's 
and  Saturday's  trades  are  cleared  on  the  following 
Monday.  Being  in  the  eyes  of  the  law  pledgees,  Buy  & 
Hold  can,  in  case  of  an  unfavorable  fluctuation  in  the 
market,  demand  enough  more  margin  to  protect  them- 
selves, or  demand  the  balance  they  have  loaned  Mr.  Long 
on  the  stock  they  bought  for  him,  to  wit,  $13,000,  with 
interest.  If  Mr.  Long's  margin  is  exhausted  and  he 
refuses  to  put  up  additional  margin,  or  refuses  to  pay 
the  balance  due  so  as  to  take  up  and  own  his  stock,  Buy  & 
Hold  have  the  right  after  reasonable  notice*  of  the  time 
and  place  of  sale,  to  sell  the  stock  they  hold  of  Mr.  Long's 
as  collateral  for  the  difference  between  the  margin 
already  put  up  by  Mr.  Long  and  the  purchase  price  of 
the  stock,  reimburse  themselves  for  their  loan  to  Mr. 
Long,  and  pay  him  the  balance  or  credit  his  account 
with  it. 

The  margin  in  the  case  supposed  protects  the  broker 
until  the  ten  ( 10)  points  have  been  exhausted,  by  a  decline 
to  130,  in  the  stock  bought.  Before  this  point  is  reached 
he  has  called  for  margin.  The  first  call  is  usually  made 
after  a  decline  of  five  (5)  points,  reminds  the  customer 

*What  is  reasonable  notice  of  the  time  and  place  of  sale  of  stock  has  never  been 
determined  by  the  courts.  Each  case  stands  on  its  own  footing,  the  facts  in  each 
are  different,  and  much  depends  upon  the  custom  of  the  business  generally,  or  upon 
the  course  of  dealing  between  the  customer  and  the  broker. 


2O 

that  his  margin  is  not  sufficient,  and  requests  a  remittance 
of  five  (5)  points  additional.  In  case  the  customer  does 
not  respond  and  the  stock  continues  to  decline,  a  peremp- 
tory call  is  made  on  him  to  the  effect  that  he  at  once 
deposit  additional  margin.  The  suggestion  is  sometimes 
made  on  the  second  call  that  a  stop  loss  order  at,  say,  131, 
would  be  accepted  by  the  broker.  If  he  fails  to  deposit 
proper  margin  in  response  to  these  calls,  the  broker  takes 
what  measures  he  can  to  protect  himself  against  loss. 
He,  therefore,  either  enters  a  stop  loss  order  at  a  price 
one  or  two  points  higher  than  the  point  at  which  the 
margin  is  exhausted,  and  notifies  the  customer  to  that 
effect,  or  gives  notice  that  he  will  at  a  given  time  and 
place  dispose  of  the  customer's  securities. 

In  the  calling  of  margin  very  much  depends  on  the 
class  of  stocks  being  carried,  the  state  of  the  market,  and 
the  broker's  knowledge  of  the  ability  of  his  customer  to 
protect  his  trades. 

The  broker  works  on  the  principle  that  he  is  not  called 
upon  to  run  any  risk  of  losing  money  on  customers' 
trades,  as  he  is  merely  an  agent  in  buying  stock  on  a 
customer's  order,  advancing,  or  using  his  credit  to  bor- 
row the  money  necessary  to  pay  the  difference  between 
the  cost  of  the  stock  bought  and  the  margin  deposited.f 


*A11  "buy"  papers  and  the  backs  of  all  "buy"  books  are  black;   all  "sell"  papers 
and  the  backs  of  "sell"  books  are  red. 

tThe  broker's  exact  legal  relation  to  his  customer  I  have  already  explained  on 
page  18. 


21 


If  Mr.  Long  has  time  when  he  gives  his  order,  or 
unless  he  is  well  known  at  Buy  &  Hold's  office,  he  fills  in 
the  following  "Buy  Order" : 


BUY 

100  (shares  of)  U.  P. 

(at)  140  (or  "at  the  market,"  or  "at  the  opening"). 
(Customer's  name.) 


Printed  in  black  ink  on  white  paper. 

The  manager  or  clerk  who  receives  the  above  "Bur" 
order  hands  it  to  the  Order  Clerk,  who  is  in  a  telephone 
booth  in  the  office  of  Buy  &  Hold,  which  is  connected 
with  che  Stock  Exchange  floor  by  the  firm's  private  wire. 

This  Order  Clerk,  who  gives  orders  and  receives 
reports  of  "executions"  of  orders  placed,  keeps  the  fol- 
lowing form  of  "Order  Sheet,"  in  which  he  makes  entry 
of  the  order. 


22 


(Left  Side  of  Sheet.) 


ORDER  BOOK. 
BUT. 


Date  Order 
Given. 

Good 
Until. 

Quantity. 

Descrip- 
tion. 

Price. 

Time. 

Whose 
Acc'nt. 

Broker. 

Jany.  2 

100 

U.  P. 

140 

B 

Mr.  Long 

("regu- 

lar) 

(Right  Side  of  Sheet.) 


SELL. 


Date  Order 
Given. 

Good 
Until. 

Quantity. 

Descrip- 
tion. 

Price. 

Time. 

Whose 
Acc'nt. 

Broker. 

The  Order  Clerk  telephones  the  order  to  his  private 
telephone  on  the  Exchange  floor. 

The  order  having  now  reached  the  private  telephone 
of  Buy  &  Hold  on  the  floor  of  the  New  York  Stock 
Exchange,  that  firm's  telephone  operator  or  receiver 
there  writes  it  out  on  the  following  "Buy  Order"  blank: 


BUY 

100  U.  P.  140 

BUT  &  HOLD. 

Please  Send  Reports  to 

Telephone 


Printed  in  black  ink  on  white  paper. 


and  immediately  pushes  a  button  which  flashes  out  the 
Floor  Broker's  number  on  the  big  blackboard  at  the  south 
end  of  the  room  where  the  Floor  Broker's  eyes  are  glued 
from  ten  in  the  morning  until  three  in  the  afternoon, 
every  day  except  Saturday,  on  which  day  the  Exchange 
closes  at  12  M. 

When  Buy  &  Hold's  Floor  Broker  sees  his  number 
flash  out  he  goes  or  sends  one  of  the  messengers  on  the 
Exchange  floor  (and  there  are  about  two  hundred  of 
them)  to  the  telephone  of  his  firm  to  receive  the  message 
awaiting  him.  The  moment  the  Floor  Broker  gets  the 
order  he  rushes  to  the  post  where  the  stock  ordered  is 
dealt  in.  There  are  sixteen  of  these  posts,  in  four  rows, 
across  the  Exchange  floor.  Arrived  there,  the  Floor 
Broker  listens  to  the  bids  and  offers,  and  if  the  stock  is 
not  active  he  asks,  "How  do  you  quote  U.  P.?"  (mean- 
ing what  is  bid  for  it  and  what  is  it  offered  at?)  Some 
broker  answers,  "Seven-eighths  to  an  eighth"  (meaning 
at  that  particular  time  139%  bid  and  offered  at  140^). 
Some  broker  may  say,  "Any  part  of  500  at  an  eighth" 
(meaning  he  offers  stock  for  sale  at  140^,  in  lots  of 
100,  200,  300,  400  or  500).*  Buy  &  Hold's  Floor  Broker 
then  says,  "40  for  100"  (meaning,  of  course,  140  is  his  bid, 
which,  by  the  way,  is  less  than  it  has  been  offered  him  at). 
"Sold,"  says  a  broker.  The  buyers  and  sellers  then 
immediately  enter  the  following  memorandum  in  their 
purchase  and  sales  memorandum,  or  "trading  books :" 


t  B  100  U.  P. 
140  (Name  of  Seller). 

t  S  100  U.  P. 
140  (Name  of  Buyer)  . 

*  Article  23,  Section  5,  of  Eules  of  Stock  Exchange. 
t  B  above  means  Bought.          }  S  above  means  Sold. 


24 

One  of  these  books  is  used  only  until  about  noon,  or 
the  middle  of  the  session,  and  it  is  then  sent  to  the  broker's 
office,  and  he  uses  a  second  one  during  the  afternoon,  and 
it,  too,  is  afterwards  sent  to  the  broker's  office  at  the 
close  of  the  market,  to  be  copied  into  the  Purchase  and 
Sales  Book,  sample  page  of  which  is  as  follows  : 

(Left  Side  of  Book.) 

PURCHASE. 


Broker. 

Of  Whom 
Bought. 

No.  of 
Shares 

Description. 

Price. 

Time. 

For  Whose 
Account. 

(Right  Side  of  Book.) 


SALES. 


Broker. 

To  Whom 
Sold. 

No.  of 
Shares. 

Description. 

Price. 

Time. 

For  Whose 
Account. 

When  an  order  has  been  executed  on  the  floor  of  the 
Exchange  the  Floor  Broker  has  it  telephoned  to  his 
office,  and  the  Order  Clerk  enters  its  execution  on  his 
Order  Sheet.  He  then  announces,  "Mr.  Long,  we  have 


bought  your  U.  P.  at  40."     Mr.  Long  is  later  handed 
the  following  confirmation: 


BUY  &  HOLD. 

MR.  LONG,  New  York,  Jan'y  2,  1908. 

Dear  Sir: 

We  have  this  day  bought  for  your  account  and 
risk  as  per  instructions. 


Shares. 

Description. 

Price. 

Name. 

100 

UP. 

140 

(Of  Seller) 

Yours  respectfully, 

BUY  &  HOLD. 
Per  . 


From  the  purchase  and  sale  book  entries  are  made 
in  two  blotters,  one  called  the  "Clearing  House  Blotter," 
the  other  "Cash  Blotter."  In  the  Clearing  House  Blotter 
are  entered  and  extended  at  their  price,  all  100  or  mul- 
tiples of  loo  share  trades  made  during  the  day  in  Clear- 
ing House  stock  (that  is  to  say,  those  stocks  which,  on 
account  of  their  activity  the  Clearing  House  has  seen  fit  to 
admit  to  clearance.)  All  Clearing  House  stocks  which 
the  firm  has  borrowed  and  loaned  during:  the  day, 
together  with  Clearing1  House  stock  which  has  been 
returned  or  called  during  the  day,  are  entered  in  this 
Clearing  House  Blotter. 


26 


CLEARING  HOUSE  BLOTTER. 


•s 

•< 

Total  Amount. 

c 

t—  1 

===== 

Amount. 

«2 

S 

! 

02 

Shares. 

Receive 
From. 

*0 

*• 
PJ 

a 
•< 
1 

Total  Amount. 

+j 
a 

S 
o 
U 

Amount. 

81 

i* 

o 

! 

OS 

cc 

6 
I 
1 

27 

Tickets  are  then  made  out  from  the  Clearing  House 
Blotter  on  the  "Buy"  side  as  follows  (same  ticket  used 
for  borrowed  stock)  : 


No New  York, 190 

CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

Receive  from 

oo  Shares @ $ 

for  account  of  the  undersigned. 

BUY  &  HOLD. 


Printed  in  black  ink  on  white  paper. 

These  are  kept  in  the  office  to  be  exchanged  with  the 
broker  who  sold  the  stock  described  on  this  ticket. 


28 

'Sales"  tickets  are  made  out  as  follows : 


No New  York, 190 

CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

Deliver  to , 

oo   Shares @ $ 

for  account  of  the  undersigned. 

BUY  &  HOLD. 


New  York, 190 

Sold  to 

By  BUY  &  HOLD 

oo  Shares  of @ $ 


Printed  in  black  ink  on  white  paper. 

These  are  delivered  by  messenger  of  the  selling 
brokers  to  the  buyer  of  stock  described,  in  exchange  for 
his  "Buy"  tickets. 

To  the  sales  ticket  are  attached  State  revenue  tax 
stamps  to  the  amount  of  $2.00  for  every  100  shares  of 
stock  sold ;  the  lower  half  of  the  sales  ticket  is  detached 
by  the  buyer  and  retained  by  him  for  transfer  purposes, 
because  without  a  ticket  properly  stamped  and  properly 
describing  the  stock  it  is  impossible  to  make  transfer. 


29 

The  exchange  of  the  above  tickets  is  made  at  the 
ticket  clerk's  window  of  the  buying  broker's  office 
before  4.15  P.  M.  The  Clearing  House  sheet  is  then 
made  up  from  the  exchanged  tickets.  After  all  bought 
and  borrowed  stocks,  and  sold  and  loaned  stocks,  as 
well  as  all  returned  loan  stocks  have  been  entered  the 
amount  of  each  stock  on  each  side  of  the  sheet  is  totaled, 
the  balance  either  way  is  entered  on  the  opposite  side.  The 
same  operation  is  performed  on  the  Clearing  House 
Blotter.  For  instance  a  firm  will  have  on  the  "deliver" 
or  sales  side  a  total  of  1,200  Union  Pacific  and  600  North- 
ern Pacific,  and  on  the  "receive"  or  buy  side  1,000  Union 
Pacific  and  900  Northern  Pacific,  showing  that  they  have 
sold  a  balance  of  200  Union  Pacific  and  bought  a  balance 
of  300  Northern  Pacific.  In  order  to  balance  stocks,  the 
200  Union  Pacific  is  entered  on  the  "buy"  side  as  "To  go 
200  Union  Pacific,"  the  300  Northern  Pacific  is  entered 
on  the  sale  side  as  "To  come  300  Northern  Pacific." 
These  balances  are  then  extended  at  the  "Clearing  House 
price."  The  Clearing  House  price  comes  out  on  the  tape 
after  3  o'clock  (the  closing  hour)  and  is  the  full  figure 
nearest  the  last  fraction  at  which  there  has  been  a  sale. 

The  sheet  is  then  balanced  as  to  extensions  of  money. 
Balance  of  stocks  and  money  must  agree  with  the  Clear- 
ing House  Blotter.  Then  if  the  total  of  the  "sales"  side 
exceeds  the  total  of  the  "buy"  side  the  broker  fills  out 
to  the  amount  of  his  credit  balance,  the  following  draft  on 
the  Clearing  House  which,  when  it  is  approved  by  the 
Clearing  House  manager,  is  returned  to  the  broker  and 
deposited  by  him  in  his  bank  with  other  checks. 


SAMPLE  OF  CLEARING  HOUSE  DRAFT. 


Clearing  House 

No  
New  York,  190 

of  the 
N.  Y.  Stock  Exchange. 

MANHATTAN  COMPANY 

Pay  to  the  order  of  the  under- 
signed    ,  Dollars  as 

Approved. 
(Signature  of  Clear- 

advised this  day  by  the  Clearing 
House    of    the    N.    Y.     Stock 
Exchange. 
$  

ing  House  Mgr.) 

Manager. 

(Broker  signs  here.) 

Should  the  total  of  the  "Buy"  side  exceed  the  total 
of  the  "sales"  side  the  broker  pays  his  debit  balance  by 
check.  Except  in  a  very  active  market,  one  in  which  pur- 
chases and  sales  would  be  made  a  wide  price  differences., 
the  amount  of  his  balance  either  way  is  comparatively 
small.  The  sheet,  together  with  all  tickets  entered 
thereon,  is  sent  to  the  Clearing  House. 


CLEARING-HOUSE  OF  THE  NEW  YORK  STOCK  EXCHANGE. 

Exd 

Ckd No 

New  York,  Jany  20,  1908.  Office  Address,  2  Wall. 

Clearing-  Sheet  of  Buy  &  Hold. 

(Left  side  of  sheet.) 


Received  From. 

Shares. 

Stock. 

Price. 

Amount. 

Robinson 
Jones 
Smith 
Jones 

500 
500 
400 
500 

U.Pac. 
N.P. 

138£ 
140f 
151f 
152 

69,375 
70,125 
60,700 
76,000 

Balance  to  go  (at  C.  H.  price) 

200 

UP. 

Draft. 

139 

27,800 
750 

2,100 

304,750 

(Right  side  of  sheet.) 


Deliver  to. 

Shares. 

Stock. 

Price. 

Amount. 

Brown 

500 

U.  P. 

139£ 

69,875 

Jones 

200 

«< 

140 

28,000 

Smith 

500 

•< 

140J 

70.125 

Robinson 

800 

N.   P. 

152 

45,600 

Jones 

100 

«« 

15U 

15,150 

Brown 

200 

« 

152 

30,400 

Balance  to  come  (at  C.  H.  price) 

300 

N.   P. 

152 

45,600 

2,100 

304,750 

Enter  on  this  sheet  only  those  transactions  for  which  tickets  have  been  exchanged. 
The  tickets  mast  agree  or  both  parties  will  be  fined. 

In  the  Cash  Blotter  (under  date  of  the  following  de- 
livery day)  is  entered  from  the  Purchase  and  Sale  Book 
all  other  trades,  ex-Clearing  House  stocks,  fractional 
amounts  of  stocks,  and  all  bonds.  Sample  of  the  Cash 


O 

H 


For  Whose 
Account 

-M 
8 
< 

1 

d 
6 

a 

Amount 

Numbers 

1 

s 

Description 

?l 

II 

To  Whom  Sold 

- 

"I 

5 


33 


In  all  these  transactions  which  belong  to  the  Cash 
Blotter,  comparisons  have  been  exchanged  as  follows: 


Original. 

BUY  &  HOLD. 


Bought  of. . 
Account  of 
Deliver  to. , 


Comparison. 
New  York, ,  190 


Duplicate. 

BUY  &  HOLD. 


Comparison. 
New  York, ,  190 


Bought  of 

Account  of 

Deliver  to 

Compared  by 


Printed  in  black  ink  on  white  paper. 

Dotted  lines  indicate  folded  in  middle  BO  carbon  paper  can  be  placed  between  to 
make  copies. 


34 


Original. 

BUY  &  HOLD. 
Comparison. 
New  York, ,  190 

Sold  to 

Account  of 

Receive    from , 

Duplicate. 

Comparison. 

New  York, ,  190 

Sold  to 

Account  of 

Receive   from 

Compared  by 


Printed  in  red  ink  on  white  paper. 


The  next  morning  before  ten  the  broker   receives 
from  the  Clearing  House  the  following  slips : 


35 


CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

The    Undersigned    Will    RECEIVE    the    Following 
BALANCE  of  Stock  at  the  Delivery  Price. 

Shares. 

Stock. 

Receive  From 

300 

Nor.  Pac. 
152 

Robinson. 

Date 
11/26/07.         Name,  BUY  &  HOLD.               No  

Printed  in  black  ink  on  yellow  paper. 


CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

The    Undersigned    Will    DELIVER    the    Following 
BALANCE  of  Stock  at  the  Delivery  Price. 

Shares. 

Stock. 

Deliver  to 

200 

U.  Pac. 
139 

Smith  &  Co. 

Date 
Na 

me,  BUY  &  HOLD.                 No.  .  .  . 

36 

One  is  for  the  purpose  of  telling-  him  from  whom  he 
is  to  receive  his  balance  "To  come"  of  the  Clearing: 
House  sheet  of  the  previous  day,  the  other  to  whom  he 
is  to  deliver  the  balance  "To  go."  Entries  from  the  slips 
are  then  made  in  the  cash  blotter  and  stocks  called  for  by 
the  slips  are  received  or  delivered  during  the  day  as  cash 
items. 

With  the  exception  of  bonds  (no  tax  is  levied  on  the 
sale  of  bonds)  and  Clearing  House  balances  of  stock 
(sales  tax  having  been  paid),  all  cash  deliveries  which 
represent  sales  must  be  accompanied  by  a  properly 
revenue  stamped  bill  of  sale. 

One  Cash  Blotter  and  one  Clearing  House  Blotter  is 
used  on  Mondays,  Wednesdays  and  Fridays,  and  another 
one  of  each  is  used  on  Tuesdays,  Thursdays  and  Satur- 
days. The  Blotter,  it  will  be  observed,  is  about  the  same 
as  the  Purchase  and  Sales  Book,  except  that  it  has  exten- 
sions showing  the  amount  paid,  or  received,  for  each 
separate  item. 

Before  2.15  at  the  cashier's  window  of  Buy  &  Hold 
the  delivery  of  this  stock  is  made  by  messenger  of  Sell 
&  Deliver. 

Every  day  in  the  six,  except  Saturday,  at  2.14  P.  M., 
tickers  throughout  the  country  print  on  the  tape  "Ham- 
mond's Time"  (Hammond  being  the  name  of  the  old 
official  clockmaker  of  the  Exchange).  Then  the  ticker 
beginning  at  15  seconds  before  2.15,  gives  fifteen  distinct 
beats,  one  second  apart,  on  the  stroke  of  the  last  of  which 
it  is  then  2.15,  or  "settlement  time"  for  Stock  Exchange 
trades  for  the  previous  day.  This  announcement  of 
Hammond's  time  on  the  tape  saves  disputes  about  the 
exact  time. 


37 

Stock  or  bonds  that  have  not  been  delivered  by  2.15 
must  be  carried  over  by  the  seller,  the  party  who  failed  to 
deliver,  and  delivery  made  the  following  day,  except  that 
Friday's  "failure"  (to  deliver)  goes  through  on  Monday. 
As  the  customer's  account  is  credited  the  amount  of  sale 
under  date  of  the  day  on  which  delivery  should  be  made, 
the  broker  makes  every  effort  to  get  his  delivery  in  before 
2.15,  otherwise  he  is  compelled  to  carry  over  " failed 
stock,"  and  thereby  loses  the  interest  that  has  been  cred- 
ited to  his  customer. 

At  the  end  of  the  day's  work,  from  the  Cash  Blotter 
and  the  Clearing  House  Blotter  the  Bookkeeper  makes  up 
his  entries  in  the  Ledger.  When  cash  margin  is  put  up 
the  Cashier  puts  the  margin  in  bank  and  credits  it  in  the 
Cash  Blotter.  The  Cash  Blotter  is  balanced  with  the  cash, 
and  the  Bookkeeper  posts  from  the  Blotter  to  the 
different  accounts.  From  the  Blotter  the  Book- 
keeper credits  Mr.  Long's  account  with  the  mar- 
gin put  up  by  him,  and  charges  him  with  the 
full  price  of  the  stock  purchased,  also  with  the  broker's 
commissions  (usually,  as  already  stated,  one-eighth  of 
one  per  cent,  of  the  par  value  of  the  stock,  the  exception 
being  stocks  dealt  in  on  the  "Curb"  and  Mining  Stocks 
whose  par  value  is  less  than  one  hundred  dollars  a  share). 
The  Commissions  on  curb  stocks  vary.  If  the  order  is 
through  a  Stock  Exchange  House  they  in  many  instances 
charge  the  same  as  for  "Board"  (Stock  Exchange) 
stocks. 

Bu)t  &  Hold  now  have  the  stock  to  deliver  to  their 
customer,  or  to  use  as  collateral,  or  to  lend  to  a  broker  who 
has  "sold  short"  for  his  customer.  Mr.  Long  now  has 
his  stock  (or  his  brokers  have  it  for  him)  and  his  account 


stands   debited   with   it   and   credited   with   the   margin 
deposited,  as  follows: 


Debit. 
Address. 


BUY  &  HOLD. 


Name.  Mr.  Long. 


Credit. 


Jan. 


100 


U.  Pac, 


140 


14,012.50 


Jan.     2 


Cash 
Deposit. 


1.000 


Money  is  borrowed  by  brokers  to  "carry"  the  stocks 
of  their  customers,  either  from  the  broker's  banker  or 
in  the  "Money  Crowd"  on  the  Exchange  floor.  If  it 
is  a  call  loan  the  Bank  can  call  it  in,  or  the  Broker  can 
pay  it  at  will,  that  is  to  say,  the  lender  must  notify  the 
borrower  or  call  the  loan,  and  the  borrower  must  return 
it,  generally  adjusting  it  before  one  o'clock  of  the  same 
day.  The  form  of  the  notification  by  the  lender  is  as 
follows : 


FIRST  NATIONAL  BANK, 
New  York. 

We  will  require  payment  to-day  of  your  $100,000 
loan. 

Dated  ,  190. . 


39 

If  the  loan  is  not  paid,  the  stock  is  sold  out  or  bought 
in  "under  the  rule"  (Rule  28,  Section  10).* 

In  stock  loans  between  brokers  both  sides  can  notify. 
The  borrower  "notifies"  and  the  lender  "calls."f 


CALL  OR  RETURN  NOTICE. 
New  York, ,  ipo 

M 

will. . 


Address 


When  the  Bank  notifies  the  Broker  that  it  wishes  its 
money,  the  Broker's  Clerk  takes  a  certified  check  to  the 
Bank  for  the  loan  and  interest,  and  receives  from  the 
banker  to  whom  he  has  delivered  the  check  the  securities 
which  he  has  put  up  with  the  Banker  as  collateral. 
Collaterals  are  kept  by  the  Bank  in  loan  envelopes  which 
have  printed  across  their  face  the  following: 


*  This,  of  course  applies  to  transactions  between  brokers  only, 
t  Rules  N.  Y.  S.  B.,  Art.  XXVI,  Sec.  4. 


40 

DEMAND  LOAN. 
BUY  &  HOLD. 

FROM 

Amount, 

Date, 

Rate  of  Interest  (as  agreed  when  made), 
COLLATERAL. 


41 

When  it  is  desired  to  substitute  one  collateral  for 
another  the  following  form  is  used: 


Loan  Substitution. 


BUY  &  HOLD, 
96  Broadway. 

(Date)  New  York, 

Loan  of  (Amount). 

I  wish  to  withdraw  the  following  Securities,  viz. : 


and   substitute   in   place   thereof, 
To  (Banker) 


'  With  this,  the  new  collateral  is  sent  to  the  banker,  who 
hands  the  messenger  the  old  collateral,  and  puts  the  new 
in  its  place. 

Every  bank  requires  borrowing  brokers  to  execute 
the  following  perpetual  loan  agreement : 

"WHEREAS,  The  undersigned  expect  from  time  to  time 

to  borrow  money  from  the   , 

and  to  pledge  with  the  Bank  property  of  various  kinds, 
as  collateral  security  for  the  payment  of  such  loan  to  be 
hereafter  made  by  the  Bank,  the  undersigned  agree  with 
the  Bank  that  all  property  thus  pledged  with  it  may  be 
held  by  it  as  security  for  all  liabilities  and  obligations  of 
every  kind  which  the  undersigned  may  at  any  time  here- 


42 

after  incur  to  the  Bank,  whether  direct  or  contingent,  and 
also  that  the  Bank  shall  have  a  lien  for  all  such  liabilities 
and  obligations  upon  any  balance  of  deposit  account  which 
the  undersigned  may  keep  with  the  Bank;  and  further, 
the  undersigned  agree  to  deliver  to  the  Bank  additional 
security,  to  its  satisfaction,  should  the  market  value  of 
the  said  securities,  as  a  whole,  suffer  any  decline. 

IT  is  FURTHER  AGREED,  That  upon  the  non-payment 
of  any  of  the  liabilities  or  obligations  above  mentioned, 
when  they  respectively  become  payable,  or  upon  the  fail- 
ure of  the  undersigned  forthwith,  with  or  without  notice, 
to  furnish  additional  securities,  in  case  of  decline,  satis- 
factory to  the  Bank  as  aforesaid,  or  in  case  of  the  insol- 
vency or  failure  in  business  of  the  undersigned,  then  and 
in  any  such  case  all  obligations  or  other  liabilities  of  the 
undersigned,  and  each  of  them,  shall  forthwith  become 
due  and  payable,  without  demand  or  notice,  and  full 
power  and  authority  are  hereby  given  to  the  Bank  to 
sell,  assign,  and  deliver  the  whole  of  the  said  securities, 
or  any  part  thereof,  or  any  substitutes  therefor,  or  any 
additions  thereto,  or  any  other  securities  or  property  given 
unto  or  left  in  the  possession  of  the  Bank  by  the  under- 
signed, for  safe  keeping  or  otherwise,  at  any  broker's 
board  or  at  public  or  private  sale,  at  the  option  of  the 
Bank,  without  either  demand,  advertisement  or  notice  of 
any  kind,  which  are  hereby  expressly  waived.  At  any 
such  sale,  the  Bank,  or  its  assigns,  may  itself  purchase  the 
whole  or  any  part  of  the  property  sold,  free  from  any  right 
of  redemption  on  the  part  of  the  undersigned,  which  is 
hereby  waived  and  released.  In  case  of  sale  for  any 
cause,  after  deducting  all  costs  or  expenses  of  every  kind 
for  collection,  sale  or  delivery,  the  Bank  may  apply  the 


43 

residue  of  the  proceeds  of  the  sale  or  sales  so  made,  to  pay 
one  or  more  or  all  of  the  said  liabilities  to  the  Bank,  as  it 
shall  deem  proper,  whether  then  due  or  not  due,  making 
proper  rebate  for  interest  on  liabilities  not  then  due,  and 
returning  the  overplus,  if  any,  to  the  undersigned,  who 
jointly  and  severally  agree  to  be  and  remain  liable  to  the 
Bank,  or  its  assigns,  for  deficiency  arising  upon  such  sale 
or  sales.  The  undersigned  do  hereby  authorize  and  em- 
power the  Bank,  at  its  option,  at  any  time  to  appropriate 
and  apply  to  the  payment  and  extinguishment  of  any 
obligations  or  liabilities,  due  to  the  bank  from  them  or 
any  of  them,  whether  now  existing  or  hereafter  con- 
tracted, any  and  all  moneys  now  or  hereafter  in  the  hands 
of  the  Bank,  on  deposit  or  otherwise,  to  the  credit  of  or 
belonging  to  the  undersigned,  or  any  of  them,  whether 
the  said  obligations  or  liabilities  are  then  due  or  not  due. 

This  instrument  and  all  rights  thereunder  may  be 
sold,  assigned  and  transferred  by  the  Bank  at  such  time 
and  upon  such  terms  as  it  may  deem  advisable;  and  the 
assignee  thereof  shall  succeed  to  all  the  rights  of  the 
Bank  hereunder. 


NEW  YORK, 190. . 

In  consideration  of  one  dollar  paid  to  the  undersigned, 
and  of  the  making  of  the  loans  referred  to  in  the  within 
agreement,  at  the  request  of  the  undersigned,  the  under- 
signed hereby  jointly  and  severally  guarantee  to  the 

,  its  successors  and  assigns, 

the  punctual  payment,  at  maturity,  of  the  loans  so  made, 
and  hereby  assent  to  all  the  terms  and  conditions  of  the 
said  agreement,  and  consent  that  the  securities  for  any 


44 

such  loan  may  be  exchanged  or  surrendered  from  time 
to  time,  or  the  time  payment  of  the  said  loans  or  any  of 
them  extended,  without  notice  to  or  further  assent  from 
the  undersigned,  who  will  remain  bound  upon  this 
guarantee,  notwithstanding  such  changes,  surrender  or 


The  following  is  the  power  which  sometimes  accom- 
panies stocks : 

Irrevocable  Stock  Power. 

KNOW  ALL  MEN  BY  THESE  PRESENTS, 

THAT 

for  value  received,  have  bargained,  sold,  assigned  and 
transferred,  and  by  these  presents  do  bargain,  sell,  assign 
and  transfer  unto. . 


Shares  of  the Stock  of  the 

standing  in name  on  the  books  of. 

do  hereby  constitute  and  appoint 


true  and  lawful  Attorney,  irrevocable  for 

and  in name  and  stead,  but  to use,  to  sell, 

assign,  transfer,  and  set  over,  all  or  any  part  of  the  said 
stock,  and  for  that  purpose  to  make  and  execute  all  neces- 
sary acts  of  assignment  and  transfer,  and  one  or  more 
persons  to  substitute  with  like  full  power,  hereby  ratifying 
and  confirming  all  that said  Attorney,  or 


45 

substitute    or    substitutes    shall    lawfully    do   by    virtue 
thereof. 

IN  WITNESS  WHEREOF,  ..............  have  hereunto 

set  ..............  hand  and  seal  the  .................. 

day  of  .......................  190 


Sealed  and  delivered  in  the  presence  of 


[L.S.] 


46 
A  SALE. 

If  his  stock  has  gone  up  or  down  and  Mr.  Long  wishes 
to  sell,  he  goes  to  the  Order  Clerk  at  the  Broker's  office 
and  orders  the  sale,  handing  him  the  following  form : 


Sell 

This  form  printed  on 
white  paper  in  red  ink.  10°  U"  P"  Markct 

Signed  (Mr.  Long). 


The  Order  Clerk  sends  Mr.  Long's  order  over  the 
telephone  to  the  Floor  Broker  just  as  an  order  to  buy 
was  sent  in,  entering  it  on  the  "Sell"  side  of  his  order 
sheet.* 

The  Floor  Broker  receives  it  in  the  same  way.  He 
goes  to  the  post  where  the  stock  is  traded  in  and  watches 
the  trading.  A  buying  broker  says,  "I  will  give  J/£,"  the 
selling  broker  says,  "I  will  sell  100  at  }4,"  and  the  buying 
broker  says,  "Take  it."  The  buying  and  selling  brokers 
then  enter  the  following  memorandum  in  their  respective 
"trading  books"  : 

Buying  Broker  Selling  Broker 

(Buy shares  &  Co.).  (Buy  &  Hold). 


Bt 

S* 

100  U.  P.  139M. 

100  U.  P.  139M. 

BUY  &  HOLD, 

Name  of  Seller. 

BUYSHARES  &  CO., 
Name  of  Buyer. 

*  See  order  sheet,  page  22. 

t  "B"— Bought.       $  "S"— Sold. 


47 


The  trade  is  then  reported  back  through  the  telephone 
to  the  Order  Clerk  in  the  Broker's  office  and  he  hands  Mr. 
Long  the  following  slip,  saying,  "We  have  sold  your  U.  P. 
at  139^4."  The  customer  is  frequently  telephoned  the 
execution  of  his  order,  and  if  he  is  not  at  the  office,  or  is 
not  telephoned,  the  following  notice  or  "confirmation"  is 
mailed  him : 


BUY  &  HOLD. 

New  York,  Jan.  4th,  1908. 
Mr.  Long : 
Dear  Sir: 

We  have  this  day  sold  for  your  account  and  risk 
as  per  instructions. 


Shares. 

Description. 

Price. 

Name. 

ICO 

U.  P. 

139^ 

Buyshares  &  Co. 

Yours  respectfully, 

BUY  &  HOLD. 
Per. 


From  the  Board  reports  (Trading  Books)  a  clerk 
copies  the  transaction  into  the  Purchase  and  Sales  Book. 
From  the  "P.  &  S."  Book  it  is  copied  into  the  Blotter. 
From  the  Blotter  it  is  entered  into  the  Ledger.  There 
the  bookkeeper  credits  Mr.  Long  with  the  price  received 


48 

for  the  stock,  less  commission  of  ^  of  I  per  cent,  for  sell- 
ing, and  a  two  dollar  State  tax  stamp  on  each  100  shares 
sold.  Mr.  Long's  ledger  account  with  Buy  &  Hold  now 
appears  as  follows : 


BUY  &  HOLD. 


Dr. 

Address. 


Cr. 

Name,  Mr.  Long. 


Jan'j 

3 

100 

U.P. 

140 

14,012  50 

Jan'y 
Jan'y 

2 
5 

100 

Check 
U.P. 

139^ 

1,000 
13,910.50 

If  this  100  shares  is  the  sole  business  Buy  &  Hold 
have  done  during  the  day  the  Entry  Clerk  has  made 
the  following  entry  in  the  "Deliver  to"  column  of  the 
Clearing  House  sheet: 


49 


Exd  
Ckd  

Nc 

)  

^OCK 

CLEARING  HOUSE  OF  THE  NEW  YORK  Si 
EXCHANGE. 

New  York,  Jan'y  5th,  1908.     Office  Address 
Clearing  Sheet  of  Buy  &  Hold. 

Receive   From 

Shares 

Stock 

Price 

Amount 

Balance  to  Go. 

100 

U.  Pac. 
Draft  a 

139 

ttached 

$13,900 
25 

"$13^925~ 

(Left  hand  side  of  sheet.) 

Deliver  To 

Shares. 

Stock. 

Price. 

Amount. 

Buyshares  &  Co. 

100 

U.  P. 

139± 

$13,925 
~$13^925~ 

(Right  hand  side  of  sheet.) 

The  original  ticket  of  Buyshares  &  Co.  is  attached  by 
Buy  &  Hold  to  their  Clearing  House  sheet  to  verify  the 
transaction. 

After  7  P.  M.,  before  which  time  all  Clearing  House 
sheets  must  be  in,  the  Stock  Exchange  Clearing  House 
makes  up  its  results,  and  the  next  day  furnishes  to  Buy  & 


50 

Hold  the  name  of  the  man  who  is  to  receive  the  stock  sold 
Buyshares  &  Co.  This  firm  may  not  be  Buyshares  & 
Co. ;  that  will  depend  upon  the  number  of  shares  of  the 
same  stock  bought  and  sold  by  them  cleared  through  the 
Clearing  House  that  day.  In  the  particular  case  I  am 
illustrating  the  Clearing  House  does  find  that  they  are 
to  be  delivered  to  Buyshares  &  Co.  The  Clearing  House 
serves  Buyshares  &  Co.  with  the  following  "yellow" 
receive  slips,  on  the  next  day  before  ten  o'clock : 


CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

The  Undersigned  Will  RECEIVE  the  Following  BAL- 
ANCE of  Stock  at  the  Delivery  Price. 


Shares. 

Stock. 

Receive  Prom 

100 

U.  P. 
139 

Buy  &  Hold. 

Date 
1/5/08    Name,  BUYSHARES  &  Co.                 No.  298. 

If  it  happens  that  some  one  else  is  to  receive  the  stock 
because  Buyshares  &  Co.'s  Clearing  House  sheet  pairs  off 
this  100  shares,  or  if  Buyshares  &  Co.  have  sold  more  of 
this  stock  that  they  have  bought,  the  Clearing  House 
serves  this  other  firm  with  these  receive  slips  at  their 


registered  office.*     Messrs.  Buy  &  Hold  are  in  the  same 
way  served  with  the  following  "Deliver"  slip: 


CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

The  Undersigned  Will  DELIVER  the  Following  BAL- 
ANCE of  Stock  at  the  Delivery  Price. 

Shares. 
100 

Stock. 

Deliver  To 

IT.  P. 

139 

Buyeharee  &  Co. 

Date 
1/5/08     Name,  BUY  &  HOLD.                          No.  412 

Buy  &  Hold  before  2.15  make  delivery  to  Buyshares 
&  Co.  of  the  100  shares  which  they  have  been  carrying 
and  have  now  sold  for  Mr.  Long,  and  receive  a  check  in 
payment  at  the  Clearing  House  price  of  139. 


*  Every  member  of  the  Exchange  furnishes  it  with  the  street  and  number  of  hie 
office,  which  must  be  in  the  vicinity  of  the  Exchange.  Thie  i»  registered  with  the 
Secretary. 


52 

SELLING    WHAT     IS     NOT    OWNED,     OR, 
"SELLING  SHORT." 

If  you  have  stock  to  sell  it  is  called  simply  selling. 
In  such  case  you  put  up  no  margin,  but  turn  over  or 
agree  to  turn  over  the  stock  to  the  broker  when  the  sale 
is  made  so  that  he  can  deliver  it  to  the  buyer.  "SELLING 
SHORT"  is  a  different  proposition.  Let  us  call  the  man 
who  wishes  to  sell  short,  Mr.  Short.  He  wishes  to  sell  a 
stock  he  does  not  own,  because  he  believes  that  he  can 
borrow  it  to  make  the  delivery  to  his  purchaser,  and 
afterwards  buy  it  in  at  a  lower  price  to  return  to  the 
broker  he  borrowed  from.  He  therefore  orders  his 
brokers  (whom  we  shall  call  Sellshort  &  Co.)  to  sell  100 
shares  of  U.  P.  (when  it  is  at  135),  believing  that  he 
can  buy  it  back  at  less,  after  paying  his  commission  of 
one-eighth  of  one  per  cent,  each  way,  etc.  His  brokers, 
Sellshort  &  Co.,  sell  it  for  him  in  the  same  manner  Mr. 
Long  sold  his  100  shares.  Mr.  Short  goes  to  the  Order 
Clerk  at  the  telephone  and  gives  the  following  order: 


Sell- 

100  U.  P.  at  135.  ThiB  form  IB  on  white 


Signed (Customer.) 


paper  in  red  ink. 


The  Order  Clerk  telephones  it  to  the  floor  of  the 
Exchange  after  entering  it  as  in  case  of  a  regular  sale, 
in  his  Order  Sheet.  The  firm's  Floor  Broker  receives 
the  message  which  has  come  overvhis  private  'phone,  and 


5B» 


which  is  handed  him  on  a  slip  just  like  the  last  one 
referred  to. 

The  Floor  Member  then  goes  to  the  post  and  sells  the 
stock  and  enters  it  in  his  "trading  book"  just  as  in  case 
of  an  ordinary  sale.  From  this  trading  book  it  is  copied 
into  the  Purchase  &  Sales  Book  at  the  Broker's  office, 
then  into  the  Blotter,  and  there  is  the  same  exchange  of 
tickets  (described  on  page  27)  as  in  case  of  a  regular 
sale. 

Messrs.  Sellshort  &  Co.  having  sold  stock  which  they 
do  not  have  to  deliver,  it  becomes  necessary  to  get  it  to 
deliver.  The  Floor  Broker  of  Sellshort  &  Co.  goes  to 
the  "Loan  Crowd"  and  says  "100  U.  P.?"  The  broker 
who  has  this  particular  stock  to  lend,  or  who  is  willing 
to  lend  it  at  the  best  terms,  says,  "five  per  cent.,"  and  the 
borrowing  broker  says,  "take  it." 

Lender  and  borrower  report  the  loan  to  their 
respective  offices. 

We  will  supose  that  on  this  particular  day  the  last 
sale  of  Union  Pacific  was  136^,  which  would  make  the 
Clearing  House  price  136.  We  will  call  the  broker  who 
lends  the  stock,  Lender  &  Co. 

Sellshort  &  Co.  make  the  following  entry  on  their 
Clearing  House  blotter  for  "Loan  account :" 


54 


6 


in 
o 


PQ 
w 

C/3 

D 
O 

K 
o 
fc 


a  s 


u 


fe  ^ 

oT     'S 


For 
Account  of. 

Is 

02 

11 
8| 

Com- 
mission 

Amount. 

0 

o 

to 

<K 

!-H 

»3 

^ 

tj 

& 

»0 

m 

1 

t> 

Shares. 

8 

Receive 
From 

4 

u 

55 

Tickets  are  made  up  from  the  Clearing  House  Blotter, 
the  amount  of  stock  being  extended  in  the  Clearing  House 
Blotter  at  the  Clearing  House  price,  and  the  lender 
delivers  his  ticket  as  follows : 


No New  York,  Feb.  1st,  1908. 

CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

Deliver  to  Sellshort  &  Co., 

100  Shares  U.  Pac.  @   136 $13,600 

for  account  of  the  undersigned. 

LENDER  &  Co. 


in  exchange  for  the  following  ticket  of  the  borrower : 


No New  York,  Feb'y  1st,  1908. 

CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

Receive  from  Lender  &  Co., 

loo  Shares  U.  P.  @  136 $13,600 

for  account  of  the  undersigned. 

SELLSHORT  &  Co. 


Sellshort  &  Co.  by  this  time  have  exchanged  tickets  on 
Mr.  Short's  sale,  with  the  broker  who  bought,  who  hap- 
pened to  be  Buy  &  Hold. 

From  these  exchanged  tickets  the  Clearing  House 
sheet  of  Sellshort  &  Co.  is  made  up  as  follows : 


Exd  

No.  333 

Ckd..  

CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK 
EXCHANGE. 

New  York,  Feb.  I,  1908.     Office  Address,  76  B'way. 
Clearing  Sheet  of  Sellshort  &  Co. 

Receive  From. 

Shares. 

Stock. 

Price. 

Amount. 

Lender  &  Co. 

100 

U.  Pac. 

136 

13,600 

13,600 

(Left  hand  side.) 

Deliver  To. 

Shares. 

Stock. 

Price. 

Amount. 

Buy  &  Hold. 

100 

U.  P. 

135 

Check, 

13,500 
100 

13,600 

(Right  hand  side.) 

The  stock  borrowed  appears  on  the  "receive"  side  at 
the  Clearing  House  price,  Mr.  Short's  sale  appears  on  the 
"deliver"  side  at  the  sales  price.  In  this  case,  as  there  is 
a  debit  balance  of  money,  Sellshort  &  Co.  draw  their 
check  to  the  order  of  the  Bank  of  Manhattan,  the  Clear- 
ing House  Bank,  for  the  amount  of  this  balance  and 


57 

deliver  at  the  Clearing  House  the  Clearing  House  sheet, 
tickets  and  check. 

From  the  Clearing  House  Blotter  entries  are  made  of 
stocks  loaned  or  borrowed,  in  the  Stock  Loan  Book  as 
follows : 


58 


co 


O 

pq 


1 

i 

Is 

1 

s 

fi 

i 

' 

1 

s 

5 

i 

m 

§ 

•c 

1 

I 

P 

°i 

1                1 

£02 

M-4 

i 

O 
X                                  OJ 

pq 

5                     -o 

II 

^                               '« 

1                    «£ 

rt                                                    flj 
r-H 

O 

_) 
^« 

1 

TH                                                                 ^00 

I          b 

O 

3 

^ 

LO 


59 

This  book  contains  a  record  of  the  amount  of  money 
the  lender  has  received  against  the  stock  loan,  the  rate 
of  interest  he  has  agreed  to  pay  for  the  money,  and  all 
rate  changes,  which  may  be  made  from  time  to  time. 

These  rates  of  interest  vary,  depending  upon  the  then 
current  rates  for  call  money,  and  the  borrowing  demand 
for  the  stock. 

The  lender  of  the  stock  has  a  right  to  demand  the 
return  of  the  stock  and  the  lender  of  the  money  has  the 
right  to  call  it  in.  Sometimes  stocks  lend  at  a  premium.* 
In  case  a  premium  has  to  be  paid  for  the  use  of  stock 
to  make  a  delivery  under  a  short  sale,  the  customer  pays 
this.  In  this  event  Sellshort  &  Company  would  have  to 
pay  this  bonus  first,  receiving  no  interest  on  the  amount 
of  money  they  put  up  or  lend  the  lender  of  the  stock. 
When  the  number  of  borrowers  balances  the  number  of 
lenders  the  stock  will  lend  "flat/'  that  is  to  say,  without 
interest  or  without  a  premium.  The  lending  broker  by 
lending  the  stock  out  avoids  keeping  it  as  an  unproduct- 
ive asset  by  getting  the  loan  of  the  amount  of  money  put 
up  by  the  borrower  of  the  stock  to  secure  it,  at  usually 
a  low  rate  of  interest.  The  Bank  will  not  lend  him  this 
full  market  value  as  the  borrower  of  the  stock  does,  and 
would  charge  him  a  much  higher  rate  of  interest. 

Stock  loans  are  usually  "Put  to  the  market/'  that  is, 
in  case  of  a  fluctuation  in  the  price  of  the  stock  loaned, 
in  favor  of  either  the  borrower  or  the  lender,  the  one 
who  is  favored  by  the  change  in  the  price  can  call  upon 
the  other  to  make  good  the  difference. 

Sellshort  &  Co.  have  borrowed  100  Union  Pacific  from 
Lender  &  Co.,  and  have  paid  them  $13,600  for  it.  On  an 

*  Art.  32,  Sec.  6.     Rules  N.  Y.  Stock  Exchange. 


6o 

advance  in  the  price  of  this  stock  Lender  &  Co.  could 
call  on  Sellshort  &  Co.  for  the  difference  between  the 
market  price  and  the  price  at  which  the  stock  was  loaned. 
On  a  decline,  Sellshort  &  Co.  could  call  on  Lender  &  Co. 
for  the  difference. 

When  stock  is  put  to  the  market  the  method  followed 
is  to  pay  off  the  old  loan  with  accrued  interest  and  make 
a  new  loan  at  the  new  price  as  follows : 


New  York,  Feb.  ;th,  1908. 
Messrs.  Sellshort  &  Co. 

By  LENDER  &  Co. 
New  Loan. 

100  U.  Pac.  $%  Market $13,800. 

Return 

100  U.  Pac $13,600. 

Int.  from  Feb.  1st,  6  days,  @ 

S%    n-33 


Difference  check  due...  $188.67 


The  old  loan  is  then  marked  off  the  loan  book,  and, 
under  date  of  the  "Mark,"  an  entry  of  the  new  loan  is 
made. 

In  the  foregoing  illustrations  of  short  selling  it  has 
been  supposed  that  Sellshort  &  Co.  have  been  compelled 
to  borrow  stock  to  make  delivery. 

If  at  the  time  when  Mr.  Short  sold  his  100  Union 
Pacific  at  135,  Messrs.  Sellshort  &  Co.  had  been  carrying 
for  some  other  customer,  or  had  owned  themselves  100 


6i 

shares  of  Union  Pacific  they  would  not  have  borrowed 
the  stock. 

Sellshort  &  Co.  would  make  entry  on  their  sheet  of 
the  sale,  balance  the  sheet  by  entering  their  balance  of 
stock  to  go  on  the  "Receive"  side  at  the  Clearing  House 
price,  and  make  delivery  next  day  of  the  stock  which 
they  were  carrying,  to  some  broker  designated  by  the 
Clearing  House,  who,  on  his  sheet  the  night  before,  had 
a  balance  "To  come,"  Sellshort  &  Co.  receiving  check  at 
the  Clearing  House  price. 

In  the  case  of  a  short  sale  of  an  Ex-Clearing  House 
stock,  the  entry  in  the  Purchase  and  Sales  Book  is  made 
in  the  usual  way,  from  there  to  the  Ex-Clearing  House 
Blotter,  the  stock  is  borrowed  in  the  loan  crowd,  delivery 
is  made  at  the  Cashier's  window  at  the  borrower's  office, 
the  borrower  pays  for  the  stock  at  its  market  value,  and 
the  borrower  then  makes  the  delivery  on  his  customer's 
sale,  both  deliveries  taking  place  before  2.15  P.  M. 

Brokers  Sellshort  &  Co.  retain  interest  on  the  short 
transaction  because  during  the  interval  covered  by  it  they 
may  have  to  borrow  the  stock  half  a  dozen  times  or  more. 

In  the  case  supposed  of  a  short  sale  of  100  U.P.  at  135, 
interest  is  received  by  the  borrower  of  the  stock  at  the 
current  or  specially  agreed  rate  from  the  lender  of  the 
stock,  who,  it  will  be  remembered,  is  the  borrower  of 
the  money.  The  borrower  of  the  stock  puts  up  his  cash 
as  collateral  for  the  stock  he  borrows.  If  the  lender  of 
the  stock  wants  it  back,  the  same  number  of  shares  must 
be  delivered  to  him  either  by  borrowing  it  from  somebody 
else  in  the  same  way  or  by  buying  stock  to  return  the 
lender  of  the  stock  in  its  place.  This  final  buying  and  the 
delivery  of  the  stock  so  bought  to  the  lender  is  called 
"covering." 


62 

On  February  7th  Sellshort  &  Co.  decide  to  return  the 
lender,  Lender  &  Co.,  or  Lender  &  Co.  demand  the  return 
of,  the  100  shares.  Sellshort  &  Co.  therefore  go  to  Brown 
and  borrow  100  shares.  The  market  in  the  meantime 
declines  and  the  Clearing  House  settling  price  is  135. 
The  stock  borrowed  from  Lender  &  Co.  must  be  returned 
to  him  at  the  price  they  loaned  at,  138.  The  Clearing 
House  Sheet  of  Sellshort  &  Co.  will  show  a  credit  balance 
of  $301.92,  or  the  difference  for  100  shares  between  the 
price  of  138  and  135,  plus  interest  paid  by  Lender  &  Co. 
on  $13,800.  The  following  entries  therefore  appear 
under  date  of  February  8th  on  the  Clearing  House  sheet : 


CLEARING  HOUSE  OF  THE  NEW 
EXCHANGE. 

Exd  

YORK 

H 

ress 

STOCK 
[0   

Ckd..     .. 

New  York,  2/8/1908.     Office  Add 
Clearing  Sheet  of  Sellshort  &  Co. 

Receive  From 

Shares 

Stock 

Price 

Amount 

Brown 
ToBal.  "Draft" 

(Left  side  of  shee 

100 
t.) 

U.  P. 

135 

13,500 
301.92 

13,801.  92 

Deliver  To 

Shares 

Stock 

Price 

Amount 

Lender  &  Co. 
(Right  side  of  sh 

Enter  on  this  sheet  only  1 
changed.    The  tic 

100 
eet.) 

hose  transa 

<ets  must  a 

U.  P. 

ctions  for  \\l 
sjree  or  both  p 

ich   tickets 
irties  will  b 

13,801.92 

13,801.92 

have  been  ex- 
e  fined. 

The  stock  has  now  declined  and  Mr.  Short  instructs 
Messrs.  Sellshort  &  Co.  to  close  the  trade  out,  or  "cover," 
which,  as  already  explained,  is  done  by  buying  the  stock 
and  returning  it  to  the  man  from  whom  Mr.  Short, 
through  his  brokers,  Messrs.  Sellshort  &  Company,  has 


64 

borrowed  it.  So  he  tells  Sellshort  &  Company  "Buy"  or 
"cover"  for  my  account  100  U.  P.  at  133.  Having 
complied  with  Mr.  Short's  instructions,  Sellshort  &  Co. 
notify  the  broker  from  whom  they  borrowed  the  stock 
which  they  used  to  make  their  delivery,  that  they  will 
return  the  stock  on  the  next  day,  using  the  following 
form: 


New  York,  Feb.  10,  '08. 
To  Brown: 

We  will  return 

to-day  loo 
Union  Pacific. 

Broker,  SELLSHORT  &  Co. 


On  February  Qth  Sellshort  &  Company,  upon  order 
the  Mr.  Short,  close  the  contract,  or  "cover,"  by  buying 
from  Robinson  the  100  shares  which  must  be  delivered 
to  Brown,  from  whom  they  were  borrowed,  and  this 
transaction  is  shown  on  the  Clearing  House  sheet  as 
follows : 


CLEARING  HOUSE  OF  THE  NEW  YORK  STOCK  EXCHANGE. 

Exd No 

Ckd.. 


New  York,  Feb.  10,  1908.  Office  Address,  No.  and  Street. 
Clearing  Sheet  of  Sellshort  &  Co. 


Receive  From 

Shares 

Stock 

Price 

Amount 

Robinson 
Draft 

100 

U.  P. 

133 

13,300 
203.75 

13,508.75 

(Left  side  of  sheet.) 


Deliver  To 

Shares 

Stock 

Price 

Amount 

Brown 

100 

U.  P. 

13,503.75 

13.503.75 

Enter  on  this  sheet  only  those  transactions  for  which  tickets  have  been  exchanged 
The  tickets  must  agree  or  both  parties  will  be  fined. 

(Right  side  of  sheet.) 

Mr.  Short  has  made  a  gross  profit  of  2.  points,  from 
[35,  the  sales  price,  to  133,  the  purchase  price,  which, 
after  paying  y%  per  cent,  commission  for  the  purchase  and 
y%  for  the  sale,  or  $25,  and  a  tax  on  the  sale  of  $2,  gives 
him  a  net  profit  of  $173. 


66 


The   closed   trade   on   Mr.    Short's   Ledger   account 
stands  as  follows : 


SELLSHORT  &  Co. 

Address.  Name,  Mr.  Short. 

Debit.  Credit. 


Feb. 

10 

100 

U.  Pac. 

133 

13,312.50 

Feb. 

1 

100 

U.  Pac 

135 

13,485.50 

When  the  short  sale  is  covered,  the  customer  is  entitled 
to  interest  on  the  amount  of  his  credit  until  the  date  that 
the  account  is  rendered. 

We  will  now  see  how  through  these  various  trans- 
actions Messrs.  Sellshort  &  Co.  have  received  the  money 
with  which  Mr.  Short's  account  has  been  credited. 

The  Clearing  House  sheet  February  ist  shows  that 
Sellshort  &  Co.  paid  the  Clearing  House  $100;  on  Febru- 
ary /th  they  paid  to  Lender  &  Co.  $188.67,  when  Lender 
&  Co.  called  on  them  to  put  the  stock  to  the  market.  On 
sheet  of  February  8th,  showing  the  return  of  the  stock  to 
Lender  &  Co.,  and  the  rebor  rowing  from  Brown  at  the 
Clearing  House  price,  Sellshort  &  Co.  had  a  credit  of 
$301.92,  and  on  the  final  sheet  of  February  loth,  a  credit 
of  $203.75.  Sellshort  &  Co.  have  thus  received  $505.67 
and  have  paid  $288.67,  or  a  balance  in  their  favor  of 
$217.00;  of  this  amount  Mr.  Short's  account  has  been 
credited  $173,  Sellshort  &  Co.'s  commission  account  cred- 
ited $25,  tax  account  $2,  interest  account  credited  $17.00. 


67 
INTEREST. 

The  Broker  charges  a  fraction  of  one  per  cent.,  over 
the  average  rate  of  interest  he  pays,  on  the  full  debt  due 
from  his  customer,  and  allows  his  customer  the  same  rate 
on  the  cash  margin  deposited. 

A  broker  who  charges  his  customers'  account  less  than 
the  average  rate  of  interest,  violates  the  rules  of  the 
Exchange;  see  page  77  of  the  Constitution  of  the 
Exchange. 

The  Broker  may  secure  money  by  lending  stock  to 
some  Broker  who  has  "sold  short"  for  his  customer  and 
needs  the  stock  (lending  the  lender  of  the  stock 
its  market  value  in  cash)  to  make  the  delivery 
required  of  his  customer,  as  was  explained  in  the  chapter 
on  Short  Sales,  page  43.  On  such  loans  the  lender  of  the 
money  gets  interest  at  call  loan  rates,  or  as  otherwise 
agreed.  A  "flat"  loan  pays  no  interest,  and  is  of  no 
advantage  to  the  lender  of  the  money  except  that 
he  gets  the  use  of  the  stock.  The  advantage  in 
a  stock  loan  to  the  lender  of  the  stock  is  that  he 
can  thus  borrow  to  the  full  market  value  of  the  stock, 
while  the  Banks  will  only  lend  him  about  eighty  per  cent, 
on  ordinary  stocks,  or  even  sixty  per  cent.,  of  the  value 
of  the  so-called  industrials. 

"Shorts"  sometimes  pay  a  premium  for  the  use  of 
stocks,  in  addition  to  letting  the  lender  of  the  stock  have 
the  use  of  the  money  without  interest.  The  premium,  of 
course,  varies  with  the  supply  and  demand  on  the  stock 
and  loan  market.  A  customer  who  has  long  stock  that 
his  broker  can  lend  at  a  premium  is  credited  with  the 
amount  of  the  premium. 

Customers  selling  short  can  contract  with  their  brokers 


68 

to  receive  certain  interest  their  brokers  get  from  brokers 
from  whom  they  borrow  to  make  deliveries  under  short 
sales. 

DIVIDENDS. 

The  date  of  the  closing  and  opening  of  stock  transfer 
books,  also  the  date  on  which  dividends  will  be  paid,  is 
announced  when  dividend  is  declared. 

Stocks  sell  ex-dividend  the  day  on  which  the  books 
close. 

Holders  of  stock  as  of  the  date  of  closing  of  the  trans- 
fer books  are  entitled  to  the  dividend. 

Mr.  Long,  who  has  bought  100  Union  Pacific  on  mar- 
gin, is  just  as  much  a  holder  of  this  stock  (except  that 
he  owes  his  broker  the  money,  over  his  margin,  advanced 
by  them  for  its  purchase)  as  is  an  investor  who  has  paid 
for  his  stock  outright ;  and  will  receive  the  dividend  when 
paid. 

The  investor  will  receive  a  check  from  the  Company 
for  the  amount  of  the  dividend  ;  the  margin  trader's  broker 
will  collect  the  dividend,  and  his  account  with  the  broker 
will  be  credited  the  full  amount. 

Before  books  are  closed  for  dividend  purposes  stocks 
should  be  transferred.  This  deprives  the  broker  of  their 
use  for  24  hours,  the  time  required  to  make  the  transfer 
by  the  transfer  office.  The  broker  who  fails  to  transfer 
stocks  calls  upon  the  broker  in  whose  name  the  stocks 
stand  for  a  due  bill  for  the  dividends,  which  due  bill  is 
in  the  following  form  : 


$ New  York, 190 

Due 

or  order,  the  dividend  declared  by  the 

due 190 . .     on Shares 

of  their Stock,  payable  when  collected 

of  the  Company. 

Charge 


A  collection  charge  of  one  per  cent,  by  the  party  issu- 
ing the  due  bill  is  charged  to  the  collection  account.  If 
when  you  are  short  of  a  stock  the  company  pays  for 
instance,  a  three  per  cent,  dividend  and  the  transfer  books 
close  for  the  dividend  while  your  commitment  is  open, 
your  broker  charges  your  account  with  300  dollars  on  each 
one  hundred  shares,  but  as  the  stock  opens  ex-dividend 
it  is  worth  only  its  market  value  again,  which  may  or 
may  be  equivalent  to  its  closing  price  prior  to  the  pay- 
ment of  dividend. 

When  a  broker  has  an  open  order  to  buy  or  sell  a 
stock  that  is  about  to  sell  ex-dividend,  he  asks  his  customer 
whether  he  shall  reduce  the  order,  by  the  amount  of  the 
dividend,  from  the  day  the  stock  sells  "ex."  If  the  broker 
cannot  reach  his  customer  the  broker  reduces  the  order 
and  notifies  the  customer  in  writing  to  that  effect. 


OP  THE    * 
UNIVERSITY 

OF 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN     INITIAL    FINE     OF     25     CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  5O  CENTS  ON  THE  FOURTH 
DAY  AND  TO  St.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


OCT  12  1934 


FEB      7  1938 


LD  21-50m-8,-32 


YB   18258 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


